Exchange Rate Changes and Inflation in Post-Crisis Asian Economies: Vector Autoregression Analysis of the Exchange Rate Pass-Through
Macro-economic consequences of large currency depreciations among the crisis-hit Asian economies varied from one country to another. Inflation did not soar after the Asian currency crisis of 1997-98 in most crisis-hit countries except Indonesia where high inflation followed a very large nominal depreciation of the rupiah. The high inflation meant a loss of price competitive advantage, a key for economic recovery from a crisis. This paper examines the pass-through effects of exchange rate changes on the domestic prices in the East Asian economies using a vector autoregression analysis. The main results are as follows: (i) the degree of exchange rate pass-through to import prices was quite high in the crisis-hit economies; (ii) the pass-through to Consumer Price Index (CPI) was generally low, with a notable exception of Indonesia; and (iii) in Indonesia, both the impulse response of monetary policy variables to exchange rate shocks and that of CPI to monetary policy shocks were positive, large, and statistically significant. Thus, Indonesia's accommodative monetary policy, coupled with the high degree of CPI responsiveness to exchange rate changes was an important factor in the inflation-depreciation spiral in the wake of the currency crisis. Copyright (c) 2008 The Ohio State University.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 40 (2008)
Issue (Month): 7 (October)
|Contact details of provider:|| Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879|
When requesting a correction, please mention this item's handle: RePEc:mcb:jmoncb:v:40:y:2008:i:7:p:1407-1438. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.